3) A firm faces a demand function per day of
P = 29 - 2Q
And a total cost function of
TC = 20 + 7Q
a) Calculate the profit-maximizing price, output, and profit levels for this firm if it is not regulated.
b) If regulators set the maximum price the firm may charge equal to the firm's marginal cost, what output level will be produced and what will be level of profits?
c) If regulators seek to equate total costs (including a fair return to invested capital) with total revenues, what output level will be produced and what price will be charged?
(a) Profit = Revenue - Cost = P * Q - TC = (29 - 2Q) * Q - (20 + 7Q) = 29Q - 2Q^2 - 20 - 7Q = -2Q^2 + 22Q - 20
For maximum profit, ...
The expert examines a cost-benefit analysis in economics. A complete, neat and step-by-step solutions are provided.